The 2008 Financial Crisis and Banking Regulation in Brazil

Abstract

The Brazilian economy was severely affected by the 2008 crisis. At the beginning of the crisis, the overwhelming majority of economic agents and authorities thought that Brazil could face some sort of decoupling since many of its macroeconomic fundamentals were very good. What we saw, however, was that the Brazilian economy was not decoupled, and expectations faced a huge deterioration soon after the bankruptcy of Lehman Brothers on 15 September. Two aspects regarding the impact of the crisis in Brazil, however, deserve considerable attention: (i) although deep, the impact did not last long. Actually, the GDP growth experienced a good recovery in the second quarter of 2009, showing the reaction of the Brazilian economy (ii) the Brazilian banking system performed very well during the crisis, although we cannot say the system was not in danger at the worst time of the crisis. In this aspect, it is interesting to mention the fact that the system showed a great deal of resilience. In our opinion, the restructuring faced by the banking system in the aftermath of the Real Plan, the development of a solid banking supervision regulation and the government’s management of public debt as part of the macroeconomic policy used to face the external crises was very helpful in allowing the system to avoid the systemic crisis that was a clear possibility to the Brazilian banking system in the beginning of 2009.